Schwab Profit Tumbles 64% Amid Restructuring

Charles Schwab Corp. (SCH), the biggest U.S. discount brokerage, on Tuesday said fourth-quarter net profit fell 64 percent as flat revenue and $111 million in restructuring charges took a toll.

Net income declined to $53 million, or 4 cents per share, from $148 million, or 11 cents per share, a year earlier. Revenue was unchanged at $1.06 billion.

Excluding the $111 million in after-tax charges related to cost-cutting and the company's exit from the capital markets business, Schwab earned $164 million, or 12 cents per share.

On that basis, the results were up 12 percent from a year earlier and up 53 percent from the third quarter, and were a penny ahead of analysts' average forecast of 11 cents a share as compiled by Reuters Estimates.

Investors were cheered by the results, sending Schwab's stock up 2.2 percent to $11.36 on the New York Stock Exchange (search).

Christopher Dodds, Schwab's chief financial officer, said the company is likely to report more charges this year but said they would be "dramatically less" than those booked in the second half of 2004.

"We could see some further job reductions," Dodds said in an interview. He said Schwab currently employs 14,200 people, its lowest level in about seven years.

The company has cut more than 12,000 jobs since the end of 2000.

"We don't expect charges in 2005 anywhere close to that of 2004 but we continue to work through various areas of the company" Dodds said. He said consultancy Bain & Co. (search) is still working at Schwab as part of an ongoing review.

San Francisco-based Schwab processed an average of 178,000 commission trades per day in the fourth quarter, up 10 percent from a year earlier.

Dodds said customer trading — which represents roughly 20 percent of the company's overall revenue — so far in January was tracking "a little bit ahead" of December levels.

Asset management and administration fees, income from loans to clients and "other" revenue reached a record $842 million in the fourth quarter, up 15 percent from a year earlier, Dodds said.

Schwab said it brought in $16.8 billion in new customer cash during the quarter, bringing total client assets to an all-time record of $1.08 trillion at year-end. The company opened 56,000 new accounts during December, the most since April 2004.

In November Schwab cut its base commission rate for online stock trades to $19.95 from $29.95. Last week, it cut in half the minimum level of assets clients need to avoid paying some fees — to $25,000 from $50,000.

Net interest revenue, or revenue from loans to customers who borrowed from the company to invest on margin, rose 34 percent to $258 million in the fourth quarter. Total margin balances outstanding stand at about $9.8 billion, Dodds said.

Shares of Schwab have fallen 17 percent in the 12 months leading up to last Friday. The stock has traded between $8.25 and $13.91 over the past year.